Key points
- The Fed's 2% inflation target refers to PCE inflation.
- Broader than CPI: it includes spending made on households' behalf, such as employer-paid health insurance.
- Adjusts as people switch between products and gives housing a smaller weight than CPI.
- Has tended to run about 0.3-0.5 percentage points below CPI inflation; CPI comes out first and moves markets more.
Example
Because CPI and PPI are published first each month, economists use them to estimate the PCE figure before it is released.
In history
Headline PCE inflation peaked at about 7% in June 2022, compared with 9.1% for CPI, mainly because housing carries less weight in PCE.
Related terms